Utility Week

UTILITY WEEK | 27TH MARCH - 2ND APRIL 2020 | 9 Policy & Regulation This week Coronavirus: regulators say they will take a 'pragmatic view' on rule bending As the chief executives of Ofgem and Ofwat say they will be flexible over compliance during the coronavirus crisis, industry leaders say they cannot take their assurances 'on faith' The chief executives of Ofgem and Ofwat have indicated they will be flexible over compliance as utilities battle unprecedented challenges from the coronavirus outbreak. Jonathan Brearley said the energy regulator would take a "pragmatic" view to rule-bending in areas where it led to the protection of vital services. Rachel Fletcher struck a similar tone saying "for the avoidance of doubt" that incentives and penalties "should not get in the way of effective prioritisation in the interests of customers". She stressed that water companies did not need to "wait for our approval before implementing prioritised working arrangements". The regulator will consider the need for any ex-post adjust- ments to the regulatory system a-er an assessment. However, observers said the measures may not be enough to assuage concerns. One source said Ofgem's position was similar to the "band playing on the deck of the Titanic" and urged more concrete assurances. Meanwhile, a figure close to the water sector said it was a big ask for firms to take this position "on faith". Brearley said he expected companies to prioritise customer and staff safety. However, he added: "Essen- tial repairs in people's homes will need to continue, so energy companies need to have plans in place for how they will do this while managing risk to their staff." He insisted he was "aware that our regulatory processes place resource requirements on energy compa- nies" saying that Ofgem would be mindful that any bur- dens placed on energy companies did not compromise the priorities to maintain services and protect the public. In her letter to chief executives, Fletcher raised the plight of business retailers, saying Ofwat and mar- ket operator MOSL would set out actions to protect Brearley: manage risk Fletcher: customers first Political Agenda David Blackman "The economy has been put into the deep freeze" It may be just over a fortnight since the Budget, but it feels like an eternity ago. Back in those dim and distant days, £30 billion was reckoned to be a big sum to earmark for the fight against coronavirus. Since then, as the economy has been put into the deep freeze to try to prevent the spread of the disease, and chan- cellor Rishi Sunak has had to pledge many times that amount. What was meant to be the year of action to tackle climate The slowdown in the global economy has provided a pause in carbon emissions, and some in the green movement have seized on the coronavirus crisis as an opportunity for society to follow a more sustainable path. That will require long-term investment, but the sudden nature of this slowdown requires immediate cash injections. We knew the transition to net zero was going to be costly. The cost of the current crisis will reduce even further the ability to pay for it. change, leading up to the COP 26 summit in Glasgow, is turning out to be anything but. This week's cancellation of the BEIS (Business, Energy and Industrial Strategy) select committee hearing, when former energy minister Claire O'Neil was expected to li- the lid on her sacking as the UK's COP 26 president, is just the latest sign of this sharp change of tack. The final meeting of the citizens' assembly on climate change, which was due to hammer out its recommended next steps for Parliament on the issue last weekend, had already been postponed. COP 26 itself may not even go ahead. customers. In the meantime, she urged wholesalers to take "a reasonable and pragmatic approach to the col- lection of wholesale charges from retailers who may be facing difficulties in obtaining payment from customers". Responding to her letter, one source told Utility Week: "The companies will welcome this but when you're run- ning a multi-billion pound businesses and you're being asked to take it basically on faith that you won't get hit by heavy penalties for what you do in the next few months, that probably seems pretty unsatisfactory." On the energy side, one observer said that while Ofgem could express its enthusiasm for a light-touch approach, this was practically impossible in the run-up to new price controls. They said: "The regulator simply has no choice but to be pragmatic in a situation like this. But the sense I get is that the mindset is not changing quick… I think there's still a bit of denial that the RIIO-2 process has to adapt, just as everything else does. "Much of what Ofgem does is driven by government and that will probably be increasingly the case under Jonathan because he comes from that background. So, when the government's attitude in many areas is 'keep calm and carry on until we tell you' that is reflected by Ofgem… At some point Ofgem is going to need to take decisive action." One source said it was no surprise the regulators' comments had come out within hours of each other: "I would be amazed if they didn't compare notes… They are economic regulators who have taken years to get on board with the environmental and social side of their role – particularly Ofwat. Now there is a sense they are standing aghast at what is happening in front, desper- ately trying to work out where they fit in." JW One source said Ofgem's position was similar to the 'band playing on the deck of the Titanic'.

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